Top software exporters suffer nearly Rs 5 trn mcap loss as rout deepens.
Illustration: Dominic Xavier/Rediff
Key Points
- The index ended the week down 8.2%
- The latest bout of selling followed a steep decline in US tech stocks
- Launch of a new AI tool by startup Anthropic has further clouded sentiment
- TCS’ market value has now slipped below the Rs 10 trillion mark
The selloff in domestic information technology stocks intensified on Friday, with the Nifty IT index sliding as much as 5.2 per cent during the session before paring losses to close 1.44 per cent lower.
Despite this late recovery, the index ended the week down 8.2 per cent, marking its worst weekly performance since April 4, 2025.
Mcap of IT exporters
So far this year, the combined market capitalisation of India’s top software exporters has declined by about Rs 4.7 trillion, representing one of the sector’s sharpest episodes of wealth erosion.
The correction has been driven by mounting concerns among investors over the potential impact of artificial intelligence (AI) on the sector’s growth outlook.
The latest bout of selling followed a steep decline in US technology stocks on Thursday, which saw the Nasdaq Composite drop close to 2 per cent.
AI tool
The launch of a new AI tool by startup Anthropic has further clouded sentiment around the future growth prospects of India’s nearly Rs 25 trillion IT services industry.
A JP Morgan note said a section of the market is increasingly concerned that Indian IT firms could miss growth targets as AI-led efficiencies prompt clients to reallocate spending.
“We are likely in year three of AI deflation and the three-year below par growth the sector is witnessing (CY23-25) include both structural (AI deflation) and cyclical (macro) factors.
“We acknowledge that it is difficult to quantify the real impact of AI (both deflation and inflation) and the duration of demand deflation given where we are in the cycle,” it said.
“However, it’s overly simplistic to assume that AI can automatically generate enterprise grade software and replace the value IT Services firms create across the cycle.
“Indeed, IT services companies remain the plumbers in the tech world, and if enterprise software/SaaS is rewritten on a bespoke basis by agents — it will need significant services plumbing to work in enterprise context and minimise AI slop.”
A recent note by Jefferies said Anthropic’s worker plug-ins and Palantir Technologies’ claims of faster SAP migrations have underscored the potential for AI to erode application services revenues for IT firms.
“Any newsflow around key advances in AI tools is likely to weigh on sentiment for IT services stocks.
“Moreover, consensus dollar revenue growth expectations of 6-7 per cent for FY27 and FY28 do not adequately factor in the threat from AI and are vulnerable to downward revisions.
“This, in turn, could pressure price-to-earnings multiples, as past cuts to revenue growth estimates have typically led to PE derating,” Jefferies stated in a note dated February 4.
The laggards
Among individual stocks, shares of Infosys fell as much as 7.54 per cent intraday before closing 1.2 per cent lower.
Tata Consultancy Services (TCS) declined nearly 6 per cent during the session but ended 2 per cent down, while HCL Technologies dropped more than 5 per cent before trimming losses to close 1.2 per cent lower.
TCS’ market value has now slipped below the Rs 10 trillion mark for the first time since November 2020.
Market participants attributed the sharp rebound from the day’s lows to value buying after the steep correction. Nevertheless, Infosys, TCS and Wipro are all down more than 16 per cent on a year-to-date basis.
By comparison, the benchmark Nifty 50 index has fallen less than 3 per cent.
